The Bank of Korea (BOK) on Monday argued against the issue of digital currencies by the central bank in a recent report. The bank said that launching its own central bank digital currency (CBDC) will raise the basic mechanisms of its monetary policy and make open market operations more complex.
Central Bank Shies Away From Cryptos
The central bank is also worried that launching its own digital currency will cause a moral hazard to the economy and cost society. It noted that issuing digital tokens could destabilize the market because the coins aren’t considered “money” or legal tender in the country.
BOK also said, “It’s desirable that the BOK is the only entity to entirely control issuing money,” launching a report that details the bank’s view on digital coins.
Kwon Oh-ik, a researcher at the bank’s economic research institute, said: “We reviewed the possible feasibility of digital currencies as currency; however, our thoughts are that digital currencies have been exposed to various categories of risk associated with credit, liquidity and legal management. Digital currencies don’t perform as money.”
BOK further stated that the bank wants to retain “appropriate control” over the country’s financial system and would not let private sector players issue currencies. It remains convinced that these coins could be used for criminal activities.
Is CBDC a Possibility?
The bank’s report isn’t too harsh on CBDCs and noted that its use could “revolutionize” the financial system. However, before they go live, they should be tested on multiple trials. Kwon stated in the report:
“Technology improvements don’t mean private sectors will be allowed to have the rights for money issuance. If this happens, the BOK should regulate them but properly.”
“A task force has been studying the possibility of issuing a CBDC and how digital currencies will influence the country’s overall financial sector since January. We will announce updates on this issue by the end of June.”
Meanwhile, South Korea remains one of the largest cryptocurrency markets in the world but with several stringent laws in place. For instance, trading in digital currencies is allowed on licensed platforms, but customers cannot operate anonymously and must pass verification procedures by the major local banks before transacting in digital coins. Since these rules have come into force, trading volume has come down.